Saturday, August 23, 2008

Death In The Afternoon For Commodity Bulls

Martin Sosnoff gets all erudite on us.From Forbes:

The sputtering end to the floating craps game in commodities is the one and only bullish investment variable for stocks.

The day the Russian army swept into Georgia, oil futures declined. This is Sherlock Holmes' dog that didn't bark: a pipeline in Georgia transports significant volumes of gas to Western Europe. In the past, any terrorist act near an oil field or pipeline anywhere spiked oil futures.

Agricultural commodities are falling along with industrial raw materials like copper and steel. Gold, which moves in rhythm with oil and contrapuntally to the dollar, is 20% below its high. The euro and British pound show almost daily weakness against the dollar, which just appreciated 9% from its month-earlier low.

Macro forces are working for U.S. securities markets. England, Europe and Japan just slipped into recession. Their central bankers no longer hold the option to raise interest rates to counter inflation. The Federal Reserve is on hold, too, now that commodities inflation is off the table.

All this good macro news should at least keep the U.S. stock market from setting new lows. Historically, when 10-year treasuries yield 4% or less, the market sells for a mid-teens price-earnings ratio. That's where we stand today. Estimating $85 a share in earnings for the S&P 500 Index gets you to 1,275. ...MUCH MORE